Review: Bitcoin creates a shared world economy

At a Glance

Can you create a currency with no issuing authority? This app shows it can be done.

John Lennon wanted us to imagine a world with no countries; when
the European Union started happening in earnest, one of the first
things they did was create the Euro. Having a common currency is a
great way to bring down geographical barriers and create a shared
economy. And with audacity that feels like it's drawn straight out
of one of William Gibson's cyberpunk novels, that's what Bitcoin
sets out to do.

Bitcoin works like a peer-to-peer file-sharing application, only
instead of transferring files, the nodes on the network transfer
data about financial transactions. Each node on the Bitcoin network
has its own unique identifier. To send someone money, simple use
the client to specify an amount, paste in their ID, and the money
is sent on its way.

Of course, before you can do that, you need to get some Bitcoins
to send. This isn't monopoly money: There are only so many Bitcoins
in existence, and they have value that can be measured in more
common currency (US Dollars, for example). The Bitcoin economy is
still forming, so Bitcoins are being slowly created, or "mined" in
Bitcoin parlance. Since one of Bitcoin's key tenets is that there
should be no central issuing authority, the clients are doing the
mining, effectively creating new money out of thin air.

At first glance, that seems very much off--kind of like printing
your own Dollar bills at home. But mining new Bitcoins is a
temporary affair. The rate of mining is hard-coded into the
application, and will slowly taper off until at last, no more coins
will be mined and the system will stabilize at 21 million
Bitcoins.

Mining your own coins is an extremely slow process. It's not
supposed to be fast. To actually start using Bitcoin as a form of
online currency, you should first find out if there are any
businesses that you'd like to work with which accept Bitcoin
payments. Bitcoin's community wiki lists dozens of businesses that
accept this new form of currency, with more being added
constantly.

Once you've found someone you'd like to pay, you should purchase
some Bitcoins to pay them with. This is done using an online
currency exchange. There are a number of Bitcoin currency exchanges, again, all listed on
Bitcoin's Wiki. At first, paying with "real" money for a virtual
form of currency may leave you with an uneasy feeling. But once
you've used your Bitcoins to pay for a valuable service, you would
see that Bitcoin is just like any other form of currency, only it's
not centrally controlled in any way.

One last caveat: Bitcoins are stored in a "wallet," which is
nothing but an encrypted file on your computer. There is no central
bank, and losing this file means you've lost all of your Bitcoins.
So if you do use Bitcoin for anything serious, be sure to
constantly back up this file to protect. Encryption might not go
amiss either, as the Allinvain
heist suggests. Digital wallets are vulnerable to hacks, and
Symantec recently reported a Bitcoin-stealing
Trojan.

Bitcoin may not be ready for prime time yet, and the system can
seem too appealing for certain types of underhanded dealings
(untraceable, anonymous money, anyone?). In fact, some US senators
are even trying
to shut it down, for just that reason. But even if Bitcoin
itself gets shut down—unlikely as that may seem—I believe it is a
sign of things to come. If you have any interest in foreign
exchange or monetary systems, you would do well to give Bitcoin a
quick spin.